Discounting

Money can decay over time like almost any other physical commodity. This is not because the physical condition of paper money deteriorates, but the underlying value of money depreciates due to inflation. To reflect this, the value of monetary cash flows in the future need to be adjusted to reflect this - a process known as discounting. we Here you learn about discounting on both a simple interest and a compound interest basis. We then look at how you can move from one discount method to another in order that cash flows from different projects may be compared.